Corporate Governance Role on Profitability of Commercial Banks in Rwanda: A Case of Selected Commercial Banks in Rwanda Stock Exchange, 2014-2018

Author(s)

Albert O. Maake , Martha Mukakalisa ,

Download Full PDF Pages: 36-43 | Views: 296 | Downloads: 83 | DOI: 10.5281/zenodo.5827927

Volume 10 - December 2021 (12)

Abstract

Background: Corporate governance is the mechanisms, tactics and relations through which firms are managed and directed. The ineffective and poor corporate governance may be one of the major cause of decline of profitability of some commercial banks. This implied absence of robust corporate governance system among companies which hinder the public trust threatening their financial profitability and survival. This study was interested to find out a significant role of corporate governance on profitability of the commercial banks in Rwanda Stock Exchange (RSE) selected Bank of Kigali and I&M Bank.

Method: The study adopted a descriptive and correlation research design to investigate the relationship between corporate governance and profitability of commercial banks in Rwanda. The population of study was two commercial banks listed in Rwanda Stock Exchange namely Bank of Kigali and I&M Bank. The secondary data were collected from the financial annual reports of two selected commercial banks. The data analyzed by using SPSS 23.0.

Results: The findings revealed that the level of corporate governance used by selected Bank in Rwanda in RSE was good where the average value of board composition of BK was 7.2 directors while I&M Bank was 8.8 directors; the average value of Board committee of BK was 5.2 while I&M Bank was 5.6 and also the average value of Board meeting of BK was 25.8 while I&M Bank was 33.2. The findings further revealed that the level of profitability of selected Bank in Rwanda stock exchange was good where the average of ROA of selected Bank in RSE for the period 2014- 2018 was 3.077% and the average of ROE of selected Bank in RSE for the period 2014- 2018 was 19.09%. It was further revealed that there is positive and significant moderate association between corporate governance and profitability of selected banks at (r= 0.615* and p=0.004<0.01). This implies that an increase of corporate governance resulting increase of profitability of selected banks in Rwanda. Findings also revealed that 23.9% changes in return on assets was caused by changes in corporate governance, 53.6% changes in net profit margin was caused by changes in corporate governance and also 31.7% changes on return on equity was caused by changes in corporate governance.

Conclusion: The increase in board composition is associated with increase in profitability of selected commercial banks in Rwanda Stock Exchange. The special attention should be taken upon when dealing with the number of board members because too small boards which will be overburdened with the firm's work will lead to underperforming.

Keywords

Corporate Governance, Profitability, Commercial Banks in Rwanda.

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